The Death of the Small Bank in the US?

Chris Mayer at The Daily Reckoning wrote a compelling article on February 28th about small banks:

The US government is going to kill the small banking industry in the US. The irony is hard to miss. It was not the small banks that threatened the financial system in the crisis of 2008. Yet they will bear the brunt of the regulatory costs imposed in its wake. The end result will be that US banking assets will collect into the hands of even larger banks.

It is a shame. Yet the death of the lamb is the life of the wolf, as an old saying has it. In other words, it is not all bad for everybody, as I’ll explain below.

First, let me begin with a piece of anecdotal evidence from the departing CEO of Third Street Bancshares, based in Marietta, Ohio. His name is James Meagle Jr., and he had been in banking for 40 years.

A CEO leaves some company somewhere every day. That, in itself, is not news. But few CEOs depart by saying that the company he’s leaving might not survive. Citing tremendous changes in regulatory costs and compliance issues, Meagle said he “didn’t have the patience anymore.” His old bank will have to spend about $100,000 to meet new demands from regulators. For a little bank with one branch, $100,000 is a lot of money. I bet it is a big chunk of the money it makes in a year. Third Street is privately held, so we can’t know for sure.

“I don’t know how we’re going to be able to make it,” Meagle tells SNL Financial. “We can [survive], but we’re just spending so much time and energy complying with these new regulations.”

“Absolutely ludicrous,” is how he described the regulators’ level of scrutiny.